Warner Bros. Discovery (WBD) is shutting down CNN+ only weeks after the streaming service launched under AT&T’s (T) watch.
AT&T’s WarnerMedia unit combined with Discovery to form Warner Bros. Discovery. From that transaction, AT&T earned more than $40 billion in cash. WarnerMedia houses several media brands, including CNN and HBO. The CNN+ service marks cable network CNN’s entry into the Netflix (NFLX)-dominated streaming market.
While AT&T’s team at WarnerMedia felt CNN+ was a great idea, Discovery executives did not like it. However, they could not stop its launch because of the antitrust rules in place before the merger was completed, according to a New York Times report. In the few weeks it had existed, CNN+ had drawn about 150,000 paid subscribers.
CNN+ Did Not Fit Well With Discovery’s Strategy
The decision to kill CNN+ has nothing to do with the quality of the product. According to a Variety report, WBD did not see CNN+ as a strategic fit. WBD’s idea is to offer an all-in service instead of standalone niche products like what CNN+ was going to be.
Cost may also have been a factor in deciding the fate of CNN+. AT&T spent tens of millions of dollars to launch the service, and more money would be needed to sustain it. More than $1 billion was going to be spent on building the service over the next four years, according to the New York Times.
What Happens to CNN+ Subscribers Now?
WBD may move the content that has been prepared for CNN+ to its other services. According to the New York Times, The CNN+ team may also be transferred to other units. For CNN+ subscribers, they will be refunded their money.
Wall Street’s Take
On April 19, Rosenblatt Securities analyst Barton Crockett initiated coverage of Warner Bros. Discovery with a Sell rating and a $20 price target. Crockett’s price target indicates 6.8% downside potential. The analysis sees a muted long-term cash flow outlook for the company, noting that the merger may not help in delivering hit shows as the companies could do separately.
The rest of the Street is cautiously optimistic about the stock with a Moderate Buy consensus rating. That’s based on four Buys, one Hold, and one Sell. The average Warner Bros. Discovery price forecast of $38.60 implies 80% upside potential to current levels. Shares have declined 15% over the past six months.
Blogger Opinions
TipRanks data shows that financial blogger opinions are 100% Bullish on WBD, compared to a sector average of 69%.
Key Takeaway for Investors
Discovery executives are showing early that they are willing to take bold steps to build a strong business. The potential savings from the CNN+ shutdown may not only go towards funding more important programs, but can also give Discovery more flexibility in tackling its debt.
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